FACTS ‘N’ FIGURES — Gold sales in perspective

The subject of central banks and gold has become a major issue for the world gold market. One question being widely discussed is “Do recent central bank sales of gold invalidate the role of gold as a portfolio asset?”

Despite the publicity about such sales, the disposals that have actually taken place in recent years have made only a small dent in the total volume of official gold stocks. According to the International Monetary Fund (IMF), total official holdings have been reduced by 3,000 tons, or less than 10%, over the past 30 years. Two-thirds of that amount, or 2,000 tons, represent disposals made by the IMF, not individual central banks. At the end of 1997, official holdings still amounted to 34,000 tons.

Over the past decade, net gold sales (sales less purchases) from official sources have occurred almost every year, but on a relatively small scale.

Net sales have not been trending upwards. In 1997, for instance, net sales amounted to 393 tons, according to Gold Fields Mineral Services, only 1% of official holdings.

Except for Canada, no country has embarked upon a strategy of sustained sales. Argentina is the only country which has sold virtually all of its gold reserves. In fact, in recent years, the number of countries buying gold has been about the same as the number selling gold. Actually, central bank sales help fill the gap that occurs annually when total gold demand outstrips new mine production.

Gold has played no formal role in the international monetary system for 25 years. There is no gold standard, as existed until the Second World War.

Nevertheless, central banks and other money institutions (including IMF) continue to hold significant amounts of gold to instill confidence in currency and because it is no one’s liability.

Gold is universally accepted as a store of value. Countries and economic systems can experience shocks resulting in devaluation of domestic paper currency. History has shown that gold maintains its value in the long term.

The European Central Bank (ECB), scheduled to come into formal existence on Jan. 1, 1999, will hold gold to inspire confidence and protect against economic catastrophes.

Sales by central banks to date have been relatively moderate. Some of the largest gold holders in Europe — such as Germany, France and Italy — have declared that they will not be sellers; these countries will dominate the policy of the European Union (EU) as a whole. Outside the EU, Switzerland is contemplating making certain disposals, but not until 2000 at the earliest.

— From a report released by Geneva-based World Gold Council.